One Investment for All Ages

Real estate can be one of the most complicated investment tools you choose to engage in your lifetime. Or you can make it a simple progressive tool that will benefit you and your family for generations to come. Working with some of the most brilliant and largest investors in multifamily, hotels and data centers, you […]

August 4, 2015

Real estate can be one of the most complicated investment tools you choose to engage in your lifetime. Or you can make it a simple progressive tool that will benefit you and your family for generations to come.

Working with some of the most brilliant and largest investors in multifamily, hotels and data centers, you cannot help but come to the realization that in real estate you can fail at any size. How big you are, how many units you own, and your leverage will factor into your long-term success and (sometimes) early demise.

My wake up call was in 2003 on February 2. After a long night, they handed me this screaming little thing at the UCLA maternity ward, which my wife and I decided to call Matthew. Suddenly, life changed. A million questions were rushing through our heads: Words such as financial security, the future, legacy, college tuition, and financial stability started etching themselves on a stone like the Ten Commandments. Life as we had known it had changed forever. After the sleep-deprived nights, mandatory car drives at 2 a.m. to get the rocking motion right and synchronize with his sleeping, one thing became clear: We needed a plan.

A plan that had to be simple, that could be replicated and that had some benefits other than being just a savings tool. We had his school, college, business startup, first car, first startup, etc. to think about, and naturally we sought for a solution in real estate. These plans are not for everyone, but so far ours has worked for us, and hope some of our readers can benefit from it. By the way the great plan is never too late to execute, you can start it at any time.

Our great plan was to buy a condo upon Matthew’s birth, and we did. We bought a small condo 2+2 at a value of $178k in Los Angeles. Our goal was to find a size that was always desirable and a value that when appreciated at the end of 18 years, would give enough equity to pay for college.

There were some hidden agendas to the purchase as well, such as at 18 if we needed to kick him out (which seems more and more likely as he goes through his “tweens”), he would have a safe place to go to and live in one and rent the other bedroom till he figures out Mom and Dad were right.

The goal was to rent the condo and be able to cover all the expenses (mortgage, insurance, and homeowners association [HOA]) and at the end of every year roll all the profits to pay down principal. Since our purchase other than a two-month vacancy upon a tenant’s move out, the plan has been working. Of course, unbeknownst to us, we had to implement the same plan three more times in the coming years.

Now time forward to 2015, we face a different challenge and have yet to decide what to do about this unique situation. My mother has turned 83 and her primary residence has become too much for her. So looking at different options at a different level, where taxes, inheritance, and quality of life for a senior come into play, we have had to adjust and adopt a similar plan suitable for her.

Rather than sell an asset that has appreciated tremendously and face the tax and loss of valuation consequences, we have chosen to rent the primary asset for a couple of years and see if she can adjust to a condo or apartment living lifestyle. For the first two years she was a tenant. It was hard on her, as she could not adjust and do the improvements she wanted in a rental, so we are now searching for a walk-friendly condo for her to move into. The rental from her primary residence has given her a steady stream of income to enjoy an upper-scale living style and, with small adjustments, enough money left over for part-time care and allowance to enjoy life without the worries of a larger property.

One of the alternatives that has come up lately is to sell the house and exchange into a small apartment building where she can live freely, collect rent for her expenses, and possibly have someone live in another of the units to provide care.

As I watched Matthew finish his 6th grade this year and move onto 7th, and look at where we were with his condo, I can now see that we are covered – rain, hail, or drought – and he is covered independently from his family’s assets and risks we take daily.

I would love to give all the technical details on how titles and investment were structured, but in my daily interaction with clients I have seen how unique each family and individual is and how complicated taxes and legalities can get. For that portion I defer to all the other prominent advisors that are on these pages and would refer all of you to consult with them.

Just a tidbit, I chose condos for the sole purpose of limited maintenance requirements and overhead of upkeep. Yes, I have seen assessments and have taken an active role in some of the HOA Boards. But patience and some good merlot has taken away most of the headaches in time, and the end result is financial security for the future.

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